Singaporean non-compete clauses only enforceable with 'legitimate business interests to protect'

Non-compete clauses (or trade clauses) outlined in employment contracts are only enforceable when there are “legitimate business interests to protect,” according to Singapore’s Ministry of Manpower.

This enforceability is also dependent on the case and is subject to adjudication by Singaporean courts.

"The Courts have held that restraint of trade clauses are enforceable only if there are legitimate business interests to protect. Restraint of trade clauses must also be reasonable in terms of scope, geographical area, and duration – they must balance employers’ needs to safeguard their businesses and employees’ ability to earn a living and should not be used simply to stymie business competition or gain an unfair advantage,” the MOM said.

The news followed a Parliamentary query regarding whether the Ministry anticipates stricter enforcement of non-compete clauses and support available for employees who may be facing unfair non-competition clauses.                                  

The Ministry confirmed that courts ensure such clauses do not have a negative impact on the flexibility and mobility of Singapore’s labour market and that smaller firms are not disadvantaged by competitor use of non-compete clauses.

"The facts of each case are different, and it is not possible for MOM to anticipate the future tendency of employers to enforce such clauses. However, in a tight and competitive labour market, employers would be wise to carefully weigh their use of such clauses, against their ability to attract prospective employees," the Ministry said.

Guidance for employers and employees

For employees who believe they have been subject to unreasonable employment clauses, the Ministry suggested they should seek assistance from their unions, the Tripartite Alliance for Fair and Progressive Employment Practices (TAFEP) or the Ministry itself.

The Ministry is also working with the tripartite partners to develop a set of tripartite guidelines that will give employers more guidance when it comes to the inclusion of non-compete clauses in employment contracts. These guidelines are expected to be released in the second half of 2024, according to the Ministry.

Tembusu Law recommends that employees ensure they understand the implacations of a non-compete clause before signing their employment contract, as “if the restrictions are too broad or the duration too long, it may significantly limit their career opportunities post-employment.”

For employers, the law firm recommends making sure that these clauses are reasonable and fair and strike a balance between business protection and freedom of employment.